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The FTC’s Misguided Case Against Meta
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The FTC’s Misguided Case Against Meta

Its attempt to block the acquisition of a virtual-reality app maker is more about going after Big Tech than about protecting consumers.

FTC Commissioner Lina Khan. (Photo by Graeme Jennings/AFP/Getty Images.)

Lina Khan has been an outspoken critic of Big Tech since her law school days, demonstrating a singular focus on the big bad guys—first Amazon and then others. Now, as the chairwoman of the Federal Trade Commission, she has the chance to test her antitrust theories in court. But the FTC’s ongoing challenge against Meta, the parent company of Facebook, reveals the weakness of going after Big Tech in any way possible.

Last fall, Meta announced it would acquire Within, best known for its fitness app Supernatural. In July, the FTC sued to block the sale. But the FTC is making a much different argument from what we normally see in antitrust fights, one that is on shaky grounds from the perspective of economic theory.

Typically, the kinds of mergers that competition authorities like the FTC find most concerning are “horizontal” mergers among competing firms that sell the same products or services. When the publishing giants Penguin-Random House and Simon & Schuster wanted to merge, the Justice Department moved to block the deal on grounds that it would reduce competition for certain authors’ manuscripts. If the FTC challenges the proposed merger of two grocery stores, as it may with Kroger and Albertsons, it will be because it believes the combination will result in less competition.

But Meta and Within don’t compete. Meta makes virtual-reality headsets and Within makes virtual-reality apps. Meta’s hope is that the addition of Within will spur interest in the company’s efforts in the “metaverse,” a catchall term for a host of VR and augmented-reality products and services that might hypothetically become connected in much the way the internet is. Meta already has gained recognition in the VR industry for developing the highly successful Quest 2 VR headset. In addition to hardware, the company increasingly has been entering the VR software and gaming sector. The FTC’s initial complaint charged that Meta’s Beat Saber game, which focuses on music, competes with Within’s Supernatural, which is a fitness app, but an amended complaint dropped those claims.

Instead, the commission is pursuing the unprovable claim that if the Within deal is blocked, Meta could instead develop its own VR fitness app to compete against Supernatural. What is the FTC’s evidence? People at Meta sent internal emails suggesting that they should partner with Peloton—an idea that got so little traction that they never even ran it past Peloton.

Today, Meta is merely a “potential competitor,” which is antitrust jargon for “not a competitor.” The FTC’s speculative theory is that, if the merger is blocked, Meta will likely create a competitor. Contrast that with the publishing house case, which was about preserving competition in a market that currently exists among companies that already compete.

Taking the speculative theory seriously would transform the FTC from an agency that looks to stop harms to consumers and to competition into an overarching regulatory czar with broad discretion over businesses’ most fundamental decisions, like whether to develop a new product or acquire one that already exists.

Unlike books and groceries, VR remains a niche sector, and one that is constantly changing. For example, Oculus’ 9 million units sold pales in comparison to the more than 100 million units sold of both the Playstation 4 and Nintendo Switch. Moreover, according to testimony at the Meta trial, fitness apps constitute only about 5 percent of VR usage. Given where VR fits in with the broader gaming market and where fitness apps rank within VR, it’s unlikely that Meta would be able to use its position to harm customers. If the quality of Within’s products fall, VR users will go to Nintendo, and fitness users will go to Peloton.

It also bears repeating that VR remains a relatively new industry that is still sorting itself out. We don’t yet know much about customers in that market or what they want. The FTC itself had to rely on a very questionable survey to have any sense of the market. Too much will change over the coming years for the commission to declare that it understands the market’s existing contours, much less who will gain market power in the future. It’s as if one looked at the market power wielded by Yahoo! or Ask Jeeves in the early days of internet search and decided that the U.S. needed antitrust enforcement to break them up.

Khan and her allied commissioners brought the suit against the recommendation of FTC staff, who have actual experience in antitrust cases. While commissioners do have the final say, the fact that they overruled the staff suggests that there have been doubts about the commission’s case since the summer.

The case is simply too speculative to justify blocking the merger. It appears to be driven more by Khan’s desire to bring Big Tech down a peg than by sound economic analysis. New York Times reporter David McCabe recently wrote of Khan and the Biden administration’s other antitrust enforcers that their “goal is to stretch the uses of antitrust law beyond the ways it has been applied for decades, including against the biggest tech companies.”

Outside of antitrust, we have a word for lawsuits that “stretch” the law: frivolous.

Disclosure: The Dispatch is a partner in Facebook’s third-party fact-checking program.

Brian Albrecht is an assistant professor of economics at Kennesaw State University, a faculty affiliate at the International Center for Law and Economics, and a Young Voices contributor.